IBM Business Perspective 2006

Transcription

1 IBM Business Perspective 2006 Patricia Murphy Vice President, Investor Relations IBM Corporation

2 Certain comments made in the presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. In an effort to provide additional and useful information regarding the company s results as determined by generally accepted accounting principles (GAAP), this presentation includes certain additional non-gaap information. The rationale for management s use of this non-gaap information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled Non- GAAP Supplementary Materials that are posted on the Company s investor relations web site at 1

3 Common Themes Agenda IT Industry IBM Strategy and Transformation Globalization Componentization Collaboration IBM Financial Model IBM Businesses IBM Corporation

4 Trends in the Global Landscape Globalization Componentization Collaboration Expands pool of skilled workers Creates social and political tension Requires execution at both high end and cost competitive ends of markets Enabled by open standards Drives networked rather than vertically integrated models Allows emergence of new architectures and business models e.g. SOA Collaboration with clients, as well as partners Required for innovation Leads to new organization and business models 3

5 The Reality: A Different IT Marketplace % Growth 15% : 10-14% 10% 2005+: 4-6% 5% WW GDP 0% -5% '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Source: IBM Global Market View IT Spending Growth Rates 4

6 Emerging IT Industry Dynamics High Value Add Printing Enterprise Focused Traditional IT Industry Individual/ Consumer Focused PC s Enterprise Low Cost Producer 5

7 The Value Landscape Business Value Business Performance Services Firms Business Performance Services (BPS) 2006 Opportunity: $1.7T CAGR: 8-10% ~$300B Overlapping Infrastructure Value Component Value Traditional Enterprise IT Industry 2006 Opportunity: $1.6T CAGR: 4-6% IT Firms 6

8 Common Themes Agenda IT Industry IBM Strategy and Transformation Globalization Componentization Collaboration IBM Financial Model IBM Businesses IBM Corporation

9 IBM Strategy Own the Innovation Conversation Broadest range of innovation Collaborate with clients and partners Premier innovation forums / jams Lead the Shift to Business Value Global Business Services Business Process Services Collaborative Innovation Services Focus on on Enterprises that that Value Innovation Drive Efficiency Through Global Integration Global Supply Chain Global infrastructure and delivery Asset development and leverage Deliver Flexible On Demand Infrastructure Information on Demand Services Oriented Architecture (SOA) Leadership Systems and Technology 8

10 IBM s Portfolio Actions: Divest Low Growth, Low Margin, Commoditizing Product Lines Major Divestiture / Exit 5-Year Performance Trend Prior to Exit DRAM 1999 Revenue Declining Global Network 1999 Flat Panel Displays 2001 Profit Impact Eroding HDD 2002 PCs 2005 Cash Flow Significant CapEx Requirements 9

11 IBM s Portfolio Actions: Acquire High Value Capabilities Acquisitions Leadership Capabilities Consolidation Leverage Infrastructure Opportunity New Market Entry Business Value PwCC Corio Maersk IT Daksh Infrastructure Value Services Software Hardware Rational Tivoli Micromuse ISS Logical Networks KeyMRO Healthlink Sector7 Trigo Tech Cyanea Alphablox Venetica SystemCorp SRD Ascential Gluecode Candle Schlumberger Filenet Lotus Equitant Liberty Ins Svcs MRO Component Value Divestitures / Exits 10

12 Business Mix: Shift from Commodity to Higher Value Business Mix 1996 Business Mix Today Transactional Annuity Transactional Annuity Commodity Commodity 11

13 Profitability Increases: Higher Gross Profit Margins and Higher Investments Financial Trends Late 90s* Financial Trends Today* 45% 42.2% 45% 40% 40.2% GPM 38.8% 37.8% 37.2% 37.1% 40% 37.9% 36.6% 36.5% 36.9% 40.1% 35% 31.4% 35% GPM 30% 28.9% E:R 27.7% 27.4% 26.4% 30% 25% 23.7% 25% 26.7% 26.1% 26.0% 25.5% E:R 26.5% 20% ** % ** ** 2005** * As Reported; Continuing Operations; includes Equity Compensation ** Excludes Special Actions 12

14 Cash Generation: Consistently High Cash Flow 12 Management View of Cash Flow ($B) * ** % 12% 9% 6% 3% 0% -3% IT Indusry Growth US Pension Funding dot.com Crash * Management View of Cash = Net cash from operating activities (continuing operations) excluding global financing receivables and net capital expenditures ** 1999 not restated for stock-based compensation Source IT Industry: IBM Internal Assessment, based on Global Market View 13

15 IBM Today Pre-tax Income Mix (2005) IBM.. Services 35% Hardware & Financing 28% transformed itself by divesting commodity businesses and investing in higher value solutions has a strategically balanced portfolio of hardware, software, and services Software 37% integrates to create unique value for clients delivers strong earnings growth and cash generation Excludes 2Q restructuring charges and PCs Reclassified for 2006 segmentation changes 14

16 Common Themes Agenda IT Industry IBM Strategy and Transformation Globalization Componentization Collaboration IBM Financial Model IBM Businesses IBM Corporation

17 IBM Long-Term Financial Objectives Revenue Growth EPS Contribution Drive revenue growth through new markets, new offerings and new products both developed and acquired 6% 8% 5 6 points Focus on productivity to improve margin -- 3 points Deploy cash to fund growth and provide shareholder returns via dividends / buybacks -- 2 points 6% - 8% 10% - 12% Deliver 10-12% Earnings per Share Growth over the Long-Term 16

18 Revenue Growth Objectives Long-Term Objective How Services 6% - 8% Grow with or better than the industry Software 6% - 9% Grow Strategic Middleware double-digits Hold legacy businesses flat Hardware 6% - 7% Gain 1 point systems share Includes developed and acquired capabilities 17

19 Revenue Growth Objectives: Another Perspective Long-Term Revenue Growth Contribution Base Revenue 2 3 points Growth Initiatives: Business Performance Svcs Emerging Countries New Markets Acquisitions 1 point 1 point 1 point 1 2 points Total Revenue 6% - 8% 18

20 Growth Initiatives and Acquisitions: Revenue Contribution Emerging Countries Business Performance Services China India Russia Brazil FY05 $4B +14% Yr/Yr Business Transformation Outsrc Strategy & Change Engineering & Technology Svcs Bus Perf Mgmt Software FY05 $4B +28% Yr/Yr New Markets Acquisitions Business Integration Retail on Demand Sensors & Actuators Info Based Medicine FY05 ~$1B >100% Yr/Yr Web-Enabled Software Business Transformation Application on Demand FY05 $1B +1 pt Year-to-Year excludes PCs 19

21 Strategic Acquisitions: Deliver Profitable Growth Strategic Acquisitions are: enabled by powerful cash generation able to leverage IBM s global infrastructure generally product-like highly scalable in growth areas a form of new product development Revenue YTY% Estimated Acquisition Revenue Growth 50% 42% 35% 34% 24% 20% 20% 19% 5% Between IBM completed 24 acquisitions priced below $500M -10% Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Estimated Acquisition PTI Margin Estimated Financial Performance (24): Revenue 5Yr CGR >25% IRR >20% Accretive Year 2 Accretive excl. intangibles Year 1 PTI (excl Intangibles) % 20% 15% 10% 8% 20% 12% 18% 1% 4% 0% -6% -10% Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Actual Projected excl intangibles 20

22 Productivity Objectives: Enabled by Global Integration 2005 Cost/Expense ($79B) Yields: Enhanced competitiveness Investments to transform and enable growth Offset labor cost increases Three Points of EPS Growth ($ M of net productivity) 21

23 Cash Objectives: Fund Growth & Shareholder Return Cash Flow Cash From Operations* *Excluding GF Receivables $12B-$14B Capital Investments ($4-5B) Systems & Technology $1.0 - $2.0B / ~20% ROIC SO & BTO Contracts $1.5B - ~20% ROIC Global Financing Operating Leases ~18% IGF ROE Acquisitions ($2-4B) Stock Repurchase / Dividends ($5-9B) BUILD LEADERSHIP LEVERAGE INFRASTRUCTURE CAPABILITIES NEW MARKET ENTRY $4 to $8B Stock Repurchase Over $70B in the last 10 years Dividend increased in each of the last 10 years 50% increase announced in

24 IBM Results: Double-digit Earnings per Share Growth $6.00 $5.32 $4.50 $3.76 $5.00 $4.00 $3.00 EPS from Continuing Operations +20% +18% $ * Shares Productivity & Margin Revenue 2004* Shares Productivity & Margin Revenue 2003 * Excludes Special Actions 23

25 Common Themes Agenda IT Industry IBM Strategy and Transformation Globalization Componentization Collaboration IBM Financial Model IBM Businesses IBM Corporation

26 IBM Services Revenue Mix (2005) Pre-tax Income Mix (2005) Services 53% Hardware & Financing Services 35% Hardware & Financing Software Software Excludes 2Q restructuring charges and PCs Reclassified for 2006 segmentation changes 25

27 Services Market Opportunity $800 $700 Services Opportunity CGR % 5% Total $600 3% Consult Billions $500 $400 $300 $200 7% 4% -1% 8% App Mgmt ITS Maint BTO $100 $ SO BTO HW Maint. ITS App Mgmt Consult 5% SO IBM Market Position (YE2005) Strategic Outsourcing #1 Consulting #1 (tie) HW Maintenance #1 Application Management #1 Integrated Tech Svcs (ITS) #1 Source: IBM Internal Assessment, based on Global Market View, January 2006, at Constant Currency 26

28 IBM Services Profile 2005 Global Services Revenue = $47.4B, +2% yr/yr Global Business Services $15.9B -2% yr/yr Consulting Systems Integration Application Management Global Technology Services $31.5B +5% yr/yr Strategic Outsourcing $16.5B, +4% yr/yr Maintenance $5.9B, +3% yr/yr Integrated Technology Services $7.5B, +1% yr/yr Business Transformation Outsourcing $1.6B, +59% yr/yr 27

29 Services Long-Term Revenue Growth Objective 6-8%: Grow with or Better than the Industry Services Initiatives Aligned around infrastructure and professional services Deliver unique solution offerings leveraging the full breadth of IBM Capture the high-growth Business Performance market Scale high volume services through SMB Leverage global presence and delivery capability 28

30 IBM Software Revenue Mix (2005) Pre-tax Income Mix (2005) Services Hardware & Financing Services Hardware & Financing Software 20% Software 37% Excludes 2Q restructuring charges and PCs Reclassified for 2006 segmentation changes 29

31 Software Industry Dynamics 2005 Software Revenue 18% Share IBM $12.6B SAP $7.0B 8% Share Microsoft $15.8B IBM $2.4B Sun $0.6B Oracle $7.5B Microsoft $5.4B CA $3.3B 1% Share Oracle $2.7B IBM (Dassault) $1.1B Microsoft $0.8B Operating Systems $33B 4% CGR Middleware $80B 5% CGR Enterprise Applications $92B 5% CGR Only top market share leaders listed IBM share includes software revenue from Global Services transactions CGR for

32 IBM Software Profile 2005 Software Revenue = $16.8B, +4% yr/yr Branded Middleware $8.0B, +9% yr/yr WebSphere Information Mgmt Lotus Tivoli Rational 47% 5% Software Services/Other $0.8B, +19% yr/yr Other Middleware $4.6B, -1% yr/yr Host Tools & Compliers Comm. Servers Printer / Storage PLM $1.1B, +3% yr/yr Computer-aided design and manufacturing software Operating Systems $2.4B, -2% yr/yr 31

33 Software Long-Term Revenue Growth Objective 6-9%: Grow Strategic Middleware Double-digits Software Initiatives Improving mix towards high growth software Lead the market in Service-Oriented Architecture (SOA) Capitalize on Information on Demand Extend Software Management capabilities / solutions 32

34 IBM Hardware Revenue Mix (2005) Pre-tax Income Mix (2005) Services Hardware & Financing 27% Services Hardware & Financing 28% Software Software Excludes 2Q restructuring charges and PCs Reclassified for 2006 segmentation changes 33

35 Hardware Competitive Landscape Server Share 4 Quarter Rolling Average 35% IBM eserver launch 30% 25% 20% 15% 10% 5% 0% Q198 Q199 Q100 Q101 Q102 Q103 Q104 Q105 Source: IDC Server Tracker 34

36 IBM Hardware Profile 2005 Hardware Revenue* = $21.5B, +5% yr/yr Retail Store Systems $.6B, -23% yr/yr Other Printer Systems $1.1B, -9% yr/yr Technology Collaboration Sols. Microelectronics +16% yr/yr Eng & Tech Svcs +39% yr/yr Servers $12.9B, +4% yr/yr System z -8% yr/yr System i +1% yr/yr System p +15% yr/yr System x +6% yr/yr Storage $3.3B, +15% yr/yr * Excludes PC Revenue 35

37 Hardware Long-Term Revenue Growth Objective 6-7%: Gain 1 Point Systems Share Per Year Hardware Initiatives Continued share gains in systems Leveraging assets to drive Technology Collaboration Solutions Exploit infrastructure solutions Capture strategic value through virtualization across all platforms 36

38 2005 Segment Revenue and Pre-Tax Profit Revenue Mix Pre-tax Income Mix Services 53% Hardware & Financing 27% Services 35% Hardware & Financing 28% Software 20% Software 37% Balanced portfolio of Hardware, Software and Services Excludes 2Q restructuring charges and PCs Reclassified for 2006 segmentation changes 37

39 Summary IBM s strategy is to address the enterprise space with higher-value offerings Divest commodity businesses and invest in higher value capabilities Execution of this strategy has improved IBM s financial profile Balanced portfolio of hardware, software, and services Strong earnings per share and cash generation IBM is positioned to capitalize on the trends of globalization, componentization and collaboration Globalization provides significant opportunity for productivity gains as well as revenue growth Componentization enables SOA and Information on Demand These trends require both innovation and efficiency for success 38

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